Five thumb rules before applying for a used car loan

The thrill and excitement of driving home a car – whether new or pre-owned, is definitely a lifetime experience. But, this excitement should not deter you from following few rules before signing off the purchase and car loan documents. The auto market has been in the path of including some or the other innovation in each of their launches. The innovation could be in the design, technology, or performance of the car. And, this trend is seen across all manufacturers – domestic and international. Such inclusions certainly compel car enthusiasts to opt for a new buy. The smart launches by automakers and the purchasing power of customers have notably increased the number of used cars in the market. And, the best part is that the used cars of the present market are way superior to their predecessors. In fact, so much so, that these used cars look almost new even though they have had a previous owner. So, it feels like almost driving a new car, of course, priced much lesser.

Now, if you have made up your mind to purchase a used car then definitely you must have done the basic assessment of your finances. Now, if you want to apply used car loan, then these five thumb rules will help you in understanding the nitty-gritty of the used car loan.

1. The process to apply for used car loan–This is probably the first factor you must be aware of once you decide to apply used car loan. You must gather information regarding loan eligibility, required documents, loan types, down payment, repayment process, factors for loan rejection, and the like. This will guard you against unwanted surprises during the loan term.

2. Type of loans – It is important to know that there are different types of loan available for used cars such as secured loans, unsecured loans, pre-computed loans, and simple interest loans. So, before you choose the type of loan here is a quick description of each type.

Secured loans require a guarantor or collateral, whereas unsecured loans do not require a guarantor or collateral. In pre-computed loans, the interest and principal payments are calculated in advance, whereas in simple interest loans, the interest rate is calculated based on the outstanding amount. So choose the type of used car loan that will best suit your need.

3. The rate of interest–This is a crucial factor for any loan, as it decides the amount of loan that has to be repaid. And, is true in the case of car loan too. Also, it is important to note that interest rate for used car loan could be slightly higher than the rate for the anew car loan.

4. Tenure of loan –Tenure of a car loan and the amount of EMI are related. For example, if the duration of loan repayment is longer then it means your monthly repayment amount will be lesser, and vice-versa. It also is an indicator that if you make a down payment of higher amount then you will have to take a loan of lesser amount thereby decreasing your loan tenure and interest rate.

5. Down payment – This is one of the important considerations by lenders to approve your loan. It is also a factor that can help reduce your loan amount, positively affecting your EMIs and interest rates.

So, in the excitement of owning a car, do not forget to pay heed to the above-mentioned rules. These factors will aid you to make good negotiations both with the car dealer and the lender. Ultimately, it is you who will be shelling out the hard-earned money, so you have all the right to strike the best deal while purchasing a pre-owned car.

About the author

Rachita Kotian is an independent blogger and writing has been her passion for a long time. A literature major, she loves exploring the world of health, lifestyle, travel and finance. When she’s not writing, she’s most likely listening to music, cooking, surfing the web, or catching up on the latest flick.